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When tactics don't pay off, and instead result in a pay out

View profile for Jigna Varsani
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It is well known that litigation can be a costly business. But a failure to follow court rules and be uncooperative can make it even more costly, as the case of Ayton v RSM Bentley Jennison & Ors highlights.

The matter concerned a claim in professional negligence against a firm of accountants where an investor sought £100,000 in damages, plus interest and costs. The accountants failed to comply with court rules (which sets out the steps that need to be taken before a claim can be issued at court). Rather than providing a Letter of Response as prescribed by the court rules, the accountants sent a cheque for £100,000 plus interest, but refused to pay any costs. Presumably, they must have hoped this would be enough to make the claim ‘go away.’ The claimant returned the cheque and issued proceedings. At the trial, the investor was awarded £119,578 (including interest) but was not awarded all his costs. He appealed.

The High Court allowed the appeal. The Judge emphasised that the court rules make it clear that ‘the onus is not just on a claimant to avoid proceedings. Once the process has started, by the issuing of a letter of claim, it is for both parties to seek to resolve their disagreements.’

The Judge went onto to say that:

this whole unfortunate train of events was unnecessary from the outset. The defendants acted unfairly in adopting the position of refusing to pay the claimant any of his pre-action costs. It must have been obvious to the defendants that a proper investigation would have been required before allegations of fraud and negligence were to be advanced against a reputable, professional firm and that such an investigation would incur significant costs.’

The High Court has reiterated that if defendants refuse offers to settle and refuse to engage with the Part 36 regime (a set of court rules on settlement with specific cost consequences), they will be ‘punished’ when it comes to costs.

The early stages of the this claim were estimated to be around £113,000, however, following this High Court decision they will be at least three times more. This just goes to show that where a defendant vehemently defends a claim tactically, this can backfire catastrophically.